Finance is one of the key ingredients for successful startups. Many entrepreneurs, however, lack knowledge of finance. This course teaches basic financial knowledge needed in starting and operating startups to entrepreneurs or would-be entrepreneurs who did not major in finance. Students of this course will learn to read and understand financial statements such as balance sheets, income statements and cash flow statements. They will also practice simple financial planning of a startup. This course also covers the concept company valuation as well as how startups get funding. This is a practical course aimed at direct application of the knowledge gained into running real startups. It also aims to enable entrepreneurs and would-be-entrepreneurs to understand the "language of finance" so that they can talk to professionals with confidence.

教学方

Steve Ahn

Professor

脚本

[MUSIC] This week, we will talk about the venture capital term sheet and valuation of a company. So in the last week, I told you that the target for seller should be to receive multiple term sheets at the same time. Term sheet is a letter of intent or memorandum of understanding, and it's a basic agreement on the terms of transactions. But it's not a legally binding agreement because you need to prepare the actual document for the investment, and you need to get due diligence. But there are provisions that are legally binding, like confidentiality, and so you cannot disclose terms or even the existence of the term sheet. And no shop means the company cannot talk to other investors for investment opportunities for one or two months. So let's look at an example of a term sheet. Here's a term sheet from VV Venture Capital, an imaginary venture capital, to the Company ABC. And here is a deadline for the acceptance of the term sheet. At the end of the term sheet, and if the company is satisfied with this term sheet, then the CEO will sign here, with a signature from the representative of the venture capital here. In between these two, there are terms, like amount of financing. In this case, $2.5 million, and it will give the investor a 20% post-closing ownership. And there is an Employee Pool, that's a stock option pool, of 20%, and we will talk about this later. And the price per share is at $2.50, and this represents a pre-money valuation of $10 million and post-money valuation of $12.5 million, and we will also talk about this later. And the type of security is a Series A Preferred Stock. This slide shows the provisions for Board of Directors, and the Board has three persons. And the holders of Series A, the investor, will elect one member of the Board of Directors. The holders of Common Stock, which means founders, will elect another board member. And the investor and founders will agree on the third board member. And there are many other terms and conditions like as shown on this slide, like liquidation preference, conversion, anti-dilution protection, protective provisions, Employee Pools, vesting, and so on. So we will talk about these later. Actually, there are two key things in a term sheet, and they are economics and control. Economics is related to return on investors in a liquidity event, like a sale, wind down, or IPO, initial public offering, of the company. And in control, the investors exercise control of the business and have the vetoing power for key decisions the company can make. And in economic terms, there are two key things. One is price per share, which is related to valuation and number of shares outstanding, and liquidation preference, and in the next session, we will talk about these. In summary, we have seen the contents of a venture capital term sheet.